KARACHI: “Pakistan’s reserves adequacy is among the lowest of rated sovereigns covering less than two months of imports as of September”, warns Moody’s in its ‘Global Emerging Markets: Outlook’ report issued on Thursday.

The agency, which rates Pakistan at B3 Negative, expects the country’s external vulnerability indicator (EVI) ratio to rise to 153 per cent in 2019.

This EVI ratio indicates country’s immediately available foreign exchange resources sufficiency to allow it to make all external debt payments, even if there is a complete refusal of creditors to roll over debt due within a given year.

“Maldives, Mongolia, Pakistan and Sri Lanka are particularly susceptible to shifts in external financing conditions”, highlights the report. However, “successful negotiations for a new International Monetary Fund programme would reduce external financing risks”, adds the report.

Pakistan’s government is knocking on all doors to avert the imminent balance of payment crisis. Prime Minister Imran Khan recently secured $6 billion – $3bn in deferred payments on oil, $3bn to be deposited in Central Bank – from Saudi Arabia. Pakistan’s central bank foreign exchange reserves have fallen to their lowest levels in four years reaching $7.5bn.

Moody’s has kept the outlook for global emerging markets (EM) “broadly stable” but warns of risks from “higher rates, politics and trade tensions”. EM issuers who have raised considerable debt in low interest rate era are likely to face significant refinancing risks in 2019 as interest rates rise and capital flow volatility increases.

The report highlights that “although the share of [Pakistan’s] foreign currency debt is relatively low at around 35pc of total government debt, declining foreign reserves because of a current account deficit of around 4 – 5pc of GDP raise repayment risks.”

Record maturities for EM economies

Emerging markets are facing record redemption within the next two years as “over $4 trillion of EM bonds and syndicated loans will mature by the end of 2020”, according to ‘Global Debt Monitor’ released by the Institute of International Finance on Wednesday.

The debt monitor points out that, despite the rising interest rates, “total debt in the emerging markets increased further in the 2Q of 2018, albeit at a slower pace than in 1Q”. EM debt has reached $71.1tr – 212pc of the total EM GDP – which is $4.8tr higher than the amount during the same period in 2017.

However, against the backdrop of positive global growth and higher than average inflation readings throughout the EM economies, global debt on a quarter-on-quarter basis declined by $1.5tr in 2Q 2018 to $247tr compared to the sharp rise of $8.7tr in 1Q of 2018.

Pakistan’s government debt rose from 67.3pc of the GDP in 2Q of 2017 to 69.9pc during the 2Q of 2018. But the country’s financial sector debt fell to 0.9pc and non-financial corporate debt also declined to 15.5pc of the GDP in the 2Q 2018.

Published in Dawn, November 16th, 2018

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